One of the eye-catching announcements at the Conservative Conference was one of real change at local level. We’re going to allow local government to keep the rates they collect from business and give councils the power to cut business rates to boost growth. Fixing the current broken system of financing local government will be a huge boost to local growth, help attract business and create jobs.
Since 1990 local business rates have been set by central government at a uniform national rate. Rates are collected locally, but then transferred to central government to be distributed back out to local areas as grants. From 2013 this Government enabled local councils to retain 50 per cent of the revenue from business rates - because it thought it right that when local areas take bold steps to boost business growth in their area, they should reap the benefits.But the current system still doesn’t do enough to incentivise growth. Councils should get more reward for boosting their local economies.
So in more detail we will move to 100 per cent retention by councils of the full stock of business rates by 2020. All £26 billion of business rates will be kept by local government instead of being sent up to Whitehall. More money is raised in business rates than spent in grants so the idea is to phase out the grant altogether and give councils extra responsibilities for running their communities. Some areas collect a lot of business rates and others less. So on day one the system that currently exists to transfer business rates revenue stays the same. But in future, the revenue from extra growth will go the local area. We will do the same thing we did when we moved to 50 per cent retention, and extend the system of top ups and tariffs. We’ll also keep the Safety Net policy which protects local area against big drops in business rates. No area will be disadvantaged just because it starts from a lower base of business rates. But for future growth after the point of devolution, councils will see all the gains of success, because we’ll abolish the Levy on growth, but keep the Safety Net. We’re also going to abolish the Uniform Business Rate. That’s the single, national tax rate we impose on every council. Any local area will be able to cut business rates as much as they like to win new jobs. The premium will be limited by a cap, likely to be set at 2p on the rate, and will have to be supported by a majority of the business members of the Local Enterprise Partnership in that area.
The full details will be set out at the Spending Review but this a good announcement for local accountability. Those against it will have to explain why.